Effects on competition from PPP investment in land passenger transportation infrastructure: Some (very) exploratory com

1. Effects on competition from PPP investment in land passenger transportation infrastructure: Some (very) exploratory comments 9th International Conference on Competition and Ownership in Land Transport (THREDBO # 9) Lisbon, 5-8 September 2005

2. Joaquim José Guilherme de Aragão University of BrasíliaEnilson Medeiros dos Santos Federal University of Rio Grande do NorteRômulo Dante Orrico FilhoFederal Univeristy of Rio de JaneiroAnísio BrasileiroFederal University of Pernambuco

3. The Challenge • Traditional focus of the Thredbo-Series: competitive regulation of land passenger transport services • New issue: the impact of new infrastructure investment on the market competition • To deal with it within 20 minutes!!!

4. Infrastructure investment and competition • When a totally new quality pattern is introduced by heavy infrastructure investment as a consequence of a strategic plan for the mobility and land use development, it may: • attract existing demand from competing systems and services • generate new demand in the course of modification of land use patterns • impose modifications to the operating market as they introduce new regulations, actors and contracts • When private infrastructure investment is involved, the respective huge risks may even force the government to super-protect the investors from competition and market risks in general.

5. Our aim • to develop, in a still very preliminary stage, a general framework for understanding the competition processes in situations where new infrastructure investment for land passenger transportation is enabled by the participation of private capital.

6. The hypothesis • Competition is not limited to the moment when the new infrastructure distorts the existing market • The different decision stages that follow along the whole process (policy, regulatory strategy, strategic planning, project decision and project design, procurement and execution) bear autonomous but integrated competition processes between

7. The hypothesis • In all these spheres of competition, different constellations of actors try to impose the decision alternatives that best fit to their respective interests.

8. Structure of the paper • PPP • proposed framework with illustrations • Conclusion and additional comments

9. PPPs and land passenger transport • rail systems, both urban and interurban • bus corridors

10. PPP investment in LPT: cases • Privatisation of existing rail services (Buenos Aires and Rio de Janeiro) • Bus Rapid Transit systems: Bogotá (Transmillenium) and Santiago de Chile (Transsantiago) • Greenfield Urban Rail Projects: Lisbon, Kuala Lumpur, Manila and Bangkok • Highspeed Rail (Gauteng, Holland) • Daisans (Japan) Required in-depth information is difficult to obtain (secrecy)!

11. PPPs and land passenger transport • Hindrances: • considerable political and demand risk involved: passenger transportation as social service, whereby fare price adjustments, even when established by contract, are difficult to implement. • land use and environmental impacts rise acid conflicts between the project promoters and the adjacent neighborhood • High land value in demographically dense environment, turns expropriation and land acquisition too expensive

12. Nevertheless • scarcity of financial resource for the provision of modern transportation pushes government to PPP • Connected real estate investment opportunities are considered as complementary receipt sources albeit expectations are difficult to fulfill • Therefore, financial participation by the public administration uses to be substantial, especially in the construction of the facility and even in the acquisition of the rolling stock. • The remaining duties for the private partner: go hardly beyond the operation and the maintenance of the facility (if capital investment is contracted, then against long-term guarantees)

13. PPP and Competition • General theory on competition (Porter 1998) foresees different forces that drive the competition in a given industry, such as: • the direct competition between the firms of a same industry; • the menace of competition by eventual entrants; • the bargaining power of the clients and furnishers; • the menace of substitute goods. • Transference of this framework, which had been set up for goods and services delivered in a free market, is not straighforward for markets which are strongly regulated by a government, mainly due to prevailing characteristics of natural monopoly

14. Multi-stage competition framework • definition of the general regulatory strategy and of the legal framework for public investments • definition of the actual projects to be gone forward with by the sector policies • selection of the projects for their inclusion into the PPP Programme • detailment of the project • selection and contract procedures • competition in the transportation market • competition for the benefits of the infrastructure investment

15. Competition for the definition of the regulatory strategies • The era of liberal voluntarism • The return of social-democrat parties to power did not imply a switch to re-nationalisation of the facilities • PFI goes to PPP • Case by case analysis of the appropriatedness of the insertion of private investment (PSC) • However, PSC not peacemaker • Struggle between parties with involvement of main stakeholders (investors, unions) • Analytical tools: political sciences and sociology

16. Competition between projects (competition for their inclusion into the policy agenda) • very complex decision process: big $$$ at stake • Not an exclusive playground for “well-minded” technocrats • Competition levels: • macro-analytical: major social actors fight for general policy agenda and respective project and programmes • micro-analytical: distinctive personalities fight for specific projects

17. Projects as voteware • Each project has an electoral value (voteware) • In a representative democracy, politicians need them for their elections, and officials for their promotion (struggle for their election by the elected decision-makers) • Voteware shall be politically efficient, capable to aggregate political, economic and social end finally also electoral forces (“hegemonability”) • Heavy requirements: technical consistency and amount of interests to be benefited from it.

18. Voteware: different subjects • Assets • Services • Programs and strategic plans • Laws and regulations

19. Competitive struggle around the voteware • different attitudes and counter-strategies by competitors • boycott the prospective proposal and try to impose their counter-project • Or: simply destroy politically the original proposal without any counterproposal (strategy of burning down of the competing fair box) • Appropriation of the prospective proposal and push away the original proponent (strategy of struggling for the ball) • Alliance with the original proponent in order to share its success and dividends (strategy of success at the shadow) • “Critical adherence”: competitor may adhere to the project, but try to interfere in its conduction, to change its aims and character during the course and after a period of collaboration try to take over the command and to oust the original proponent (strategy of ousting from the boat)

20. Competitive struggle around the voteware • this level of competition may occur between individual or group actors from a same party or association! • different types of interpersonal relationships, from the friendly collaboration to the openly inimical competition, going through different grades of "critical" collaboration • different personal characters come foreground, from the most aggressive to the more pacific, going through different grades of dissimulation.

21. Political construction of the project: the ways to come to the major decision-maker • step-by-step consolidation until contacting major decision-maker, going through several but relevant inferior stances (staircase tactics) enables preventive steps by competitors • use the direct personal relationships with the major decision-maker or by building up a broad alliance outside the government, preferably with politically influential economic and social forces which have direct access to the major decision-maker, by-passing the different inferior and intermediary stances (heliport tactics)  provokes revenges by by-passed stances. • Mixed (both-and)

22. Battlefields • competition between the political parties, and within each of them, between groups and fractions and individual leading persons • tensions between different government resorts • lobbyism: different economic groups and their representative organizations try to get influence over the governmental budget • social struggles by social groups and organizations outside the economic, political and social hegemonic field (neighborhood associations, NIMBY´s, NGO’s, environmental groups and the like) • regions and citiesin contest • Tensions between statutory planning officials in Government and the lobbies and politicians: strategic long-term planning versus opportunistic project-by-project decision

23. Battlefields (cont.) • Planning law: not the definitive victory of the pro-planning party • Struggle for regulatory stability • Transparency and their ennemies • Which participation? (the quango issue)

24. Competition at the level of the selection of projects for the PPP program • very recent playfield • applies to countries where the government has decided to include regularly the partnerships into the toolbox for the investment programs • Use of analytical evaluation and selection tools e.g. value and risk analysis, guidelines and handbooks by “PPP Units” • Actual selection process: political and economic stakeholders will not leave alone to technocrats with their hocus-pocus tools the power of the decision! • However, the rejection of a project for the inclusion in to the PPP program does not implies that the project is dropped , as it may be executed by other, more conventional funding means • Nevertheless, the exclusion from the PPP program may be interpreted as a loss of prestige for its stakeholders

25. Competition during procurement • Classic locus of competition for the market • Procurement in different stages (consultancy, construction, operation) • Building up of the project and of the contract (and tender rules): market dialogue • Government competes also for investors (selling its projects to the market) • Building up of competing consortia: alliances and preference-building (pre-selection) • Open, restricted, and negotiated procurement modi

26. Competition within the transportation market (The traditional Thredbo issue) • Greenfield infrastructure projects: special need for protection from open competition (natural monopoly) • Here, the competition is basically limited to the procurement process • However, the transport market is always permeable to journey options which put in question the pretended market protection assured by contract

27. Competition within the transportation market Competitive challenges to monopolistic protection by contract • feeder lines: in general, inserted into the contract subject in order to be operated by the private partner or be subcontracted by the same to other operators; they may also be conceded by the Authorities to a third party, but in a way to assure that they are at least operationally submitted to the main operator (operational contracts) • competition from other public transport services (unintegrated feeder lines, other independent operators, charter services, paratransit, illegal operators, other transportation modes, taxicab) • competition from individual transport (auto, bike, per pedes)

28. Competition for the positive impacts deriving from the investment • Immediate impact: rise of land value in the proximities of the new system • Benefits reclaimed by: • Government: tries to regain at least part of the benefits deriving from his direct investments by adjusting the fiscal values, imposing taxes on the especially benefited neighborhoods or by other financial means authorized by Planning Law. • Investors of the Project: : additional rewarded with areas and real estate adjacent to the new infrastructure • Third parties (residents, real estate investors, manufacturing industry, commercial and service sector, etc.): may anticipate themselves, buying land for a still not adjusted price, as soon they get notice from a project that may raise land values.

29. Main ideas to be retained • Multi-phase competition process • In the different phases, different sets of stakeholder • Voteware hypothesis

30. Are planners and academicians ETs? • Need to start from the real existing capitalism • Complex process of competition • Politics is real, economics not always (at least not in the way proposed by concepts and models) • Politic Scientists are welcome • The plaidoyer for strategic planning and sustainable regulation must adjust itself to the dynamic realities • The actual relevance of the project over planning (all we need are projects)

31. Solutions • Efficient, but participative planning practices • On-time delivery of good, sustainable projects (subjection to electoral calendar!) • Projects (voteware) may include laws, regulation, programmes! • But asset investments are always in the order of the day! • Competition and collaboration • The more ambitious are the projects, the higher is the need for collaboration and for strategic planning

32. Finally.... A big issue for research • mapping of competition and collaboration moments at the execution of infrastructure projects • mapping of the respective actors and their competitive and alliance strategies • mapping of analytical tools existing and to be developed in order to study the mapped phenomena • observation of introduction of forms of public-private partnerships on the field of infrastructure investment for land passenger transport • Case studies • Co-operative research network: how about it?